Strong Opinions @marksbirch

Random thoughts from a NYC entrepreneur and investor about start-ups, technology and the people that make it all happen. Also find time for good tunes and good food.
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Over the weekend, Hunter Walk tweeted out an interesting question. In my typical way, I responded with something snarky about underwear choices. When I thought about the question more deeply though, it was a rather clever way of highlighting the challenges of rapid growth and scaling startups for long-term success.

You can ask CEO of 100 person startup one “yes” or “no” question in order to gauge probability longterm success. What question do you ask?

Hunter Walk

There were plenty of excellent responses. Some people went to the CEO’s background (ostensibly to unlock some hidden trait or trigger of entrepreneurial drive. Some asked about metrics or market conditions. Some mentioned the tie between product and market and employees. All provide certain insight, but we only get slivers of time or small pieces of a much bigger puzzle.

So what question would I ask to gauge the long term success of a startup? I would ask the CEO:

Does everyone understands and believes in the vision of the business.

Assuming that the CEO is being completely transparent in her/his answer, then this could be the most illuminating and insightful question one could ask.

There are various points along the startup journey where founders have to “level up” the business. By that I mean the founders have to put the operational pieces in place to grow the business. The includes hiring, implementing systems, capturing metrics, establishing processes and policies. etc. Most people assume that occurs at various funding stages or at a certain amount of users, number of paying customers, or revenue objectives. However, what I have seen is that the real barometer of startup growth and determinant of sustainable growth businesses is headcount.

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Just as number of customers gives a good indicator of the maturity of a sales organization, headcount provides a good analog for assessing organizational maturity. At certain thresholds, there are expectations of how that startup should operate. The four person startup is not the same at the ten person startup is not the same as the fifty person startup (or at least they shouldn’t be). Those thresholds happen at certain levels of headcount.

Think about it, is it not the people you hired that are most responsible for driving growth? In the early stages when it is just a handful of people, it all falls on the shoulders of the founders. They own the strategy, the execution, and the results. As the company grows, the execution part becomes more removed for the founders who rely upon those they hired to carry the load. That is not to say founders are not executing, just that the nature of their roles change as the company starts to grow. They transition from founder operators to organizational leaders.

As leaders, it is incumbent on the founders to steer the organization towards the vision. In companies that operate poorly, I often find people are motivated for the wrong reasons and have little true understanding of the vision. People start doing their own things, silos and cliques develop, quality of hires goes down. The result is that the company starts to falter, at first with small things, and then quickly spiraling out of control when the company hits a stumbling block. That is when the Board panics, the CEO gets fired, and the once promising startup begins a precipitous downfall.

The startup death spiral is something that is almost impossible to reverse. The one thread founders have to keep everyone on the same page and motivated has been severed and beyond repair. But how do they keep everyone aligned to that vision? It starts with maintaining the culture, having a clear set of values, and being transparent. Another way to think of the CEO is as the keeper of the culture. You could even say they are the Chief Culture Officer of the growing business. It is up to the CEO to maintain hiring standards, to ensure the executive team is aligned, to communicate the vision and goals of the company on a regular basis, and to “walk the talk”. In many regards, that is the key role of the CEO as the company grows. The CEO obviously has Board and investor responsibilities. The CEO will certainly be involved in key sales and partner relationships. The most important role however is being a leader and leading the company towards the vision.

At the point of 100 employees, the startup has just broken through the early stages and could be considered growth stage. They know the business model cold, they have a repeatable sales process, revenues are stable and growing, and the hiring funnel is healthy. This is also where many of the cracking points will happen, because even if the product/service is successful, that does not mean the company itself has matured to the point of supporting and building upon that success. In other words, you stumbled into a potential runaway success, but you are not able to capitalize it much like how most child stars seem to run into difficulties later in life in continuing on their careers.

A startup where everyone is aligned to the vision and the culture and the values the CEO sets however speaks volumes to the long-term success of the startup. The CEO and executive team have exhibited strong leadership. The company has strong processes and hiring standards. There is a sense of order and direction, even at the hectic pace of startups in growth mode. Instead of the CEO trying to be the hero when the company falters, everyone pitches in during those rough periods without becoming disenchanted. There is belief.

A CEO that cannot answer the question of employee alignment to vision with a definitive yes is a CEO that is running a dying company. The startup may not be dead yet, but it is certainly on a dangerously deceptive trajectory.

I recently finished reading Ben Horowitz’s book The Hard Things About Hard Things.  Normally I am not one for the business books, but this one was pretty solid.  Maybe at some point I will do a review, but the reason I bring it up now is the thing that whirled in the back of my mind as I was reading was one word, urgency.

The word itself came up a few times in the book, particularly around CEO psychology, but the idea of urgency was in many ways the underlying thread of the narrative.  In peacetime, urgency is not valued, and rightly so.  At some point, an organization cannot continue to operate at breakneck speed and needs to slow done to accommodate process and order and structure.   But early stage startups are not at peace, they are in constant war mode.

In war, decisions are truly life and death.  Strategy is important, but ultimately execution is what wins battles.  As Mike Tyson once quipped, everyone has a plan until you get punched in the face.  So you have to play the role of battlefield tactician, constantly adjusting as the events on the field play out.  And often, you have to make decisions with less than perfect information.  When you are starting a new company, with a new product, in an untested market, how could you expect to know anything in advance?  Handling the events and affairs of each and every day is in and of itself a major challenge.

It is a balancing act and the currency is risk.  Does one risk the company on one bold assault on the hope that it means victory, understanding that failure means total capitulation?  Or can one jibe and juke through smaller battles as they learn the field to find the winning combination?  That could work, but it risks missing the broader strategic picture that could leave you completely exposed or take so long that you end up stalled in a prolonged game of trench warfare.  Instead of dying because of one big bet gone awry, you die through a million little cuts, bleeding capital and energy till there is nothing left.

But whatever choice you make, speed has to be a priority.  Paul Graham talks about speed being the natural state of startups.  There is even a book called Do More Faster by Brad Feld where every other vignette emphasizes speed.  Early startups have few process or organizational inhibitors, they are by nature an engine built for fast iteration, quick pivoting, and constant experimentation.   You are testing hypotheses on product-fit, on customer segmentation, on lead development, on sales process, on inbound demand generation, on hiring practices.  In fact, there are so many thing to test, you have to be laser focused on execution, efficiency, and urgency.

Urgency is more than simply speed.  I like this definition that I came across, “importance requiring swift action.”  In the context of startups, I think of urgency as doing things smarter and learning in less time than the typical large corporation.  Given the limited resources of young companies the imperative is to focus on those things that move the needle now towards the goal and to do so with persistence and conviction.

Now regular readers of this blog may remember my earlier posts on the “Slow Startup" and doing less slower.  While on the surface, it sounds like I am contradicting myself, the ideas actually compliment themselves.  You want to be able to execute quickly and iterate faster, but results can be painfully slow to materialize.  It can take months and sometimes years to see the fruits of one’s efforts.  In the tech startup world, taking years is generally not an option.  However it is important to build slowly to have a clear understanding of the market and how your product best fits to address the needs in that market.  Because you do not have years to figure that out, you must get the most out of the short timeframe and limited resources at your disposal.  Results take time and patience, but the work to achieve results requires urgency.

Do you have a sense of urgency?  Are you executing with speed, efficiency, and conviction towards measurable goals?  Do your efforts move you closer towards an specific objective?  Ask yourself these questions and be self-aware enough to realize when your activity to date have been less than focused.  Remember, it is not only speed that counts, it is the learning during the process and making that learning count.

"As a startup CEO, I slept like a baby. I woke up every 2 hours and cried."

- Ben Horowitz

Sleeping like a baby these days…

I read with amusement the other day a point Keith Rabois made regarding entrepreneurs and blogging:

After what must have been well over a few hundred responses, it seemed that Keith was not really all that off the mark. There are maybe a handful that could be considered possible exceptions, but for the most part those successful CEO’s and entrepreneurs (by Keith’s definition) are just not blogging. They may throw up a post once in a blue moon, but on a regular basis? Not so much. Let’s face it, who has time for that?

I am not sure this is anything unexpected though. Honestly, how many people blog on a regular basis (which for the sake of argument, once a week)? Other than people whose job is in fact blogging, either for their own enterprise or in the employ of an online content provider, there is not a whole lot. There are a few well known examples in the tech world like Fred Wilson and Brad Feld, otherwise there is scant few. Who’s got the time to spare if it’s not your job?

Or maybe our idea of time and commitment is misconstrued. I do not necessarily believe it is always comes down to time that stops folks from blogging. You could say that about any non-work activity. Who has time for exercise or who has time to watch Stanford college football games or who has time to spend with one’s family or who has time to take vacations…you get the point. Everything is a balance based on priorities. If it is important, then you make time for it.

Rather than time, the issue may be about exposure. Blogging is a very public and permanent record of the author. Your blog advertises you, your thoughts, and your opinions to the world, all unfiltered and available in a click to be shared across all the social networks. For one’s personal brand, that is a powerful medium. From the perspective of a company however, that is not a highly valued. Rather, the corporate minions see it as a massive and unacceptable risk.

CEO’s and entrepreneurs are not their own boss. That whole “be your own boss” thing is overstated. They might have more latitude, but there are investors to answer to, employees to consider, customers to please, media and press to cultivate, partners to work with. A CEO is not a utility player or a free agent, but the face of the company. That is why those quotes in press releases sound so dull and lifeless. That is why there are handlers and training provided to CEO’s at speaking events to make sure they do not go off script. That is why companies invest heavily in people and processes so that they can control the message and the flow of communications.

Sure, most CEO’s and entrepreneurs are too busy to blog. Often startup founders are heads down for months at a time delivering on product and close sales and building a company. There are plenty however that do have or could make the time. Some have even said as much to me. But they realize either explicitly or implicitly that their “blogging” may not be a good idea. At most, they may get a company blog or a regular column in some media outlet, but the content will be heavily scrubbed or even ghost written by the PR team. At that point, the words lose poignancy and authenticity. Their blogs and social media accounts are sanitized to remove any whiff of originality and personality.

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And that is a shame. I see immense value in blogging as an executive or entrepreneur. For me, this is my “down time” in that it affords me the opportunity to think expansively on ideas or to think deeply on a topic. That means I cut out an hour of the day for a post, but it is well worth it. In the same way, it is important for folks to have dedicated “think time” and the exercise of writing lends itself naturally to that process. It unlocks ideas, it exposes insights, and it brings clarity, which are the type of mental exercises that become diminished when in the fever pitch of running a company.

Will we see more authentic voices emerge from the CEO and successful entrepreneur world? I believe so, as we are starting to see with more executives taking to Twitter and more forums available provide thoughts and opinions without the baggage of maintaining a blog. But it is not so much about the “infrastructure” or the medium of delivery, but the fact that social media is not the exception anymore, but the reality. Kids are growing up in an age of ubiquitous social networks, always on Internet, faster and more powerful smartphones, and with this access is a different set of mores about sharing and openness. Maybe it is not “blogs” in the future, but in order to rise above the increase noise and overflow of information, authentic, engaging, and genuine voices are going to stand out. That is where the best and smartest companies will be heading in the future, with leaders that shift away from risk management and move forward into engagement.

ADDENDUM:  I realized that I forgot one of the key points I meant to discuss and the whole reason for this post!  One of the implications in the Twitter debate was that CEO’s and entrepreneurs that blog often are taking time away from running their companies.  Thus “blogging” somehow correlates to harming one’s business.  This is important to understand for startups because many investors harbor negative perceptions of entrepreneurs that are heavy users of social media.  The message is that it is okay for investors to blog and tweet and such, but not for entrepreneurs.  I find that position ludicrous and rather hypocritical.  As Andy commented below, would the same hold for speaking at events, talking to the press, writing thought leadership pieces and articles, or other types of communications?  Of course not!

As a company gets big, the information that informs decision-making gets massive. Depending upon the prism through which you view the business, your perspective will vary. If two people are in charge, this variance will cause conflict and delay. Every employee in a company depends on the CEO to make fast, high quality decisions. Often any decision, even the wrong decision, is better than no decision. These decisions are pulse of the organization. Sharing command almost guarantees that the CEO position will perform poorly in this dimension.

Shared Command" by Ben Horowitz

Sharing ultimate decision making responsibilities is always an impending leadership disaster.

McKesson’s Chairman and CEO John Hammergren has set a new record in corporate America: Largest pension around. The drug distribution company disclosed in a regulatory filing Friday that Hammergren was entitled to a $159 million lump-sum payment for his pension, had he voluntarily left the company on March 31.

McKesson CEO entitled to record $159M pension" via SFGate

It should be noted that he has not received this payment, this is simply a filing as required by public companies to disclose various compensation scenarios for departing executives.  However, he received in excess of $50 million per year in compensation since joining McKesson as CEO in 1999.

Meanwhile, pensions are being outright eliminated for most Americans or converted to 401k plans with little or no guarantees.  Many American workers have gone without a pay raise for over a decade.  Meanwhile average CEO compensation for public US companies is $9.7 million and the ratio of their salaries to rank and file employees is 204:1.

Folks, this is not sustainable.  The culture of greed and self-interest is not compatible with democracy or a balanced, well-functioning civil society.  The country’s founding was one built upon the ideal of opportunity for all, not opportunism for few.

Half.com founder and CEO Josh Kopelman once told me that the thing he hated most about being CEO was when two of his smartest people would disagree and he would have to come down on one side: “These decisions were usually 51/49% and I was left having to console the ‘loser’.” He’s right. Arbitrating these disagreements is one of the hardest and most emotionally draining parts of the job, but many CEOs just avoid it and nothing breeds a horrible culture like a CEO who puts offs decisions or, worse yet, makes too many compromises.

The CEO’s Weekly Checklist // Scott Weiss (via datainsightsideas)

They should really change CEO to CDO for Chief Decision Officer.  Your most important role when leading a company is to make decisions.  If you fail at that, your company is heading for ruin.

(via datainsightsideas)

Senior managers are attending a bigger share of meetings than before…attending 70% of private investor meetings over the past year, up from 64% a year earlier. On average, CEOs and finance chiefs devoted 14 days and 17 days, respectively, to these meetings.

Investors Demand CEO Face Time" via The Wall Street Journal

Investor relations is a full-time job for CEO’s if your company takes on investors, regardless of whether it is a startup or a Fortune 500 corporation.  On another note, researchers have found that attending meetings makes people stupider.

As a startup CEO, you wear many, many hats.

The deck that Mark Suster created ”Entrepreneurshit: The Truth About Building Startups" has some solid thoughts.  While the focus of the deck is on fund raising, this was the one image that stood out for something other than fund raising.

When you are the CEO of a startup, you take on every role to some degree.  You are not just the hotshot hacker or the sales rockstar or the product strategist.  You are involved in every single task, no matter big or small and no matter whether it is your core competency or something totally foreign.  Even when the startup grows and you take on more to handle things like accounting and sales and HR, you are still responsible for knowing what is going on.

A funny thing that I have noticed about superstars is how rare it is to repeat success.  There are many obvious examples from the ranks of corporate CEO’s, when many highly lauded executives have moved on to another opportunity only to meet abject failure.  Robert Nardelli from GE to Home Depot, John Sculley from Pepsi to Apple, Carol Bartz from Autodesk to Yahoo are just a few of the more high profile examples.  They all had varying length tenures, but they all suffered from the same problem.  They had extensive skills but those skills did not translate in the new environment.

This skills vs. environment issue is something I have seen play out again and again across many types of roles and levels of responsibility.  In a HR tech startup I co-founded, one project involved analyzing the executive training program for a Fortune 100 firm.  The program trained highly prized recruits for two years to groom them for senior roles within one of the business units.  However, many of the recruits had quit once the program concluded.  It was discovered that people who stayed and thrived had one thing the other recruits did not have; a strong background in research and development.  It did not matter that the recruits were Ivy League MBA’s with impeccable credentials or that the company was a highly respected firm that won numerous best employer awards.  If the person did not fit well into the organization, the relationship never worked.

Studies bear out much of the dichotomy between a job candidate’s skills and long-term success.  Leadership IQ looked into why newly hired employees fail and concluded that 89% failed for reasons other than not having the requisite skills for the job.  Many of the factors cited such as motivation, temperament, communications and such all point to the fact that while skills are important, they may have less of a factor in job performance than we have come to expect.

One might be excused for coming to the conclusion that hiring is at best a crap shoot.  Many of the tools that we have become familiar with seem to do a poor job at actually assessing talent.  However, there are ways to reduce the risk of hiring failures by being aware of common traps one makes during the hiring process when evaluating candidates.  The following three points cover the most egregious yet correctable mistakes when hiring for highly critical roles:

  • Job Title Divergence – One mistake is thinking that a particular job title encapsulates one set of immutable and easily transferable skills.  The more responsibility and ownership one has over the direction and execution of corporate goals, the greater variability in the skills required to be successful.  This is because the role is less about a set of tasks to be completed (thus more easily defined in a job description), and more about leadership skills, decision making and higher level analytical thinking.  These “softer skills” tend to be missed in most tests and interview scripts that focus on technical and functional job skills.  However, a larger part of one’s success in a job owes more to skills that are not as easy to capture on a test.
  • Past Performance Bias – Just like investments, past success is a poor barometer for future performance.  While it can demonstrate one’s bias towards action, what made a person successful in past roles may not transfer well into the other job (because of Job Title Divergence).  Looking at the historical record can color the candidate vetting and decision making process because at the risk of offending a highly “pedigreed” candidate, there is a tendency to soft ball the assessment process.  This came to light in my HR startup where a client had a series of VP of manufacturing hires fail in quick succession even though the candidates had excellent track records.  We performed a deep analysis of the skills required for the role, then found a candidate that was completely outside the industry that was more of a fit based on the newer profile.  The lesson was to focus more on the skills (covering functional, management, and leadership domains) needed for the job during the hiring process rather than on past performance.
  • Culture Fit Dissonance – While the first two mistakes are serious, discounting or completely ignoring the issue of cultural fit within the broader organization has lethal results.  Mark Hurd was prasied as a great hire when HP first brought him onboard as CEO, yet several years later after his departure HP was in disarray and demoralized.  The “HP way” was about innovation and product focus, but the Hurd way was about sales and money management.  Culture fit is not something that can be immediately gleaned from a resume or at a distance.  Even the cursory interview or two does not work.  Mark Zuckerburg spent 50 hours in total over the course of many meetings and many months with Sheryl Sandburg before hiring her.  It was obvious she was that proverbial “A player” and had the requisite skills, but Mark had to be sure she would fit in at Facebook.

So, what is the most important lessons to take away from this?  Do not underestimate the damage caused by the misalignment of culture in your hiring!  It is a slow killer and something that is hard to recognize when you are under the impression that everyone around you is an “A player”.  That is the heavy selection bias that colors our viewpoint when it comes to evaluating talent.  We dismiss the poor hires as bad apples, disgruntled employees, or simply liars.  On the other hand, we overestimate employees that we deem great hires as having superior skills.  The reality is that being highly skilled is only part of the equation.  Talent can only thrive when skills, culture, and goals meet.

This is not to say that there are not extraordinary people that seem to have that “A player” aura.  Steve Jobs managed to resurrect his early career to become one of the most legendary business leaders of our generation.  Richard Branson would be another excellent example of being massively successful in a number of endeavors.  However, these are entrepreneurs that defy categorization.  They are not people that are simply plugged into someone else’s culture; they create culture.  They would never be people that you hire, because they are outsized personalities and overwhelming forces of charisma, energy, and conviction.

Do not get caught in the game of hiring A players and chasing talent.  Have the strength of conviction that your culture and hiring process are sound.  If you have a compelling vision, a promising product, and a good network, you can find talented people to join your team.  The people that show genuine excitement about your idea, give up sleep and weekends and fat paychecks, and show initiative are your true A players.  Those are the people that are going to stick it out with you when things are rough.

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